The CCAA1 is the most flexible Canadian statute under
which a corporation can restructure its business. When compared
against the BIA,2 the CCAA looks like a blank canvass
and lends itself well to invention and mutual compromise. The
overarching goal of the CCAA is for the debtor corporation to
formulate a plan of compromise or arrangement that is approved by
the corporation's creditors or to effect a going concern sale,
both of which are intended to provide greater value to the
creditors than if the debtor corporation were liquidated under the
However, proceedings under the CCAA are expensive and typically
involve priority charges over the property of the debtor
corporation for professionals, directors and officers of the debtor
corporation, and interim financing, which can have the effect of
eroding creditors' realization.
Despite the flexibility of the CCAA, certain types of businesses
may be less suitable for its application. Three recent decisions of
the Ontario Superior Court of Justice (Commercial List),
Dondeb,3Edgeworth4 and Hush
Homes,5 involved real estate development companies
seeking protection under the CCAA. These cases all shared similar
facts: the debtor corporations were in the business of real estate
development and investment and had several single-purpose
subsidiary corporations, each of which owned a discrete piece of
real estate. Each piece of real estate was encumbered by at least
one mortgage and many were cross-collateralized. Mortgages
accounted for the vast majority of the first-ranking secured
indebtedness. The debtor corporations sought protection under the
CCAA and certain of their respective lenders opposed the
applications on the basis that it would be more advantageous and
cost efficient for them to proceed with an orderly sales process
under their respective mortgage security.
In Dondeb, the debtor corporations sought relief under
the CCAA to enable a liquidation of their assets and property. DIP
financing and a charge to secure it, as well an administrative
charge to secure the fees and expenses of the professionals
involved in the CCAA administration, were all sought. The
application was opposed by various secured lenders who collectively
held approximately 75% of the value of the secured indebtedness.
The basis for the opposition was that: (i) the properties would be
more appropriately sold under the mortgage security; (ii) the DIP
financing and administration charges unnecessarily burdened the
equity of the properties; (iii) the lenders had lost all faith in
management and its ability to generate revenue from the real
estate; and (iv) no plan would be realistically accepted by the
lenders because there was no underlying business to restructure
that would yield greater value for them than through enforcement of
their own respective mortgage security.
* Ian Aversa is a partner in the Financial Services
Group and Jeremy Nemers is an associate in the Financial Services
Group. The authors would like to thank Daniel Everall, a
student-at-law at Aird & Berlis LLP, for his assistance in
preparing this paper.
1 Companies' Creditors Arrangement
Act, R.S.C. 1985, c. C-36 [CCAA].
2 Bankruptcy and Insolvency Act, R.S.C.
1985, c. B-3 [BIA].
3 Re Dondeb Inc., 2012 ONSC 6087
4 Romspen Investment Corp. v. Edgeworth
Properties, et. al., 10 November 2011, CV-11-9452-00CL,
Receivership Order of the Honourable Justice Campbell (Ont. S.C.J.
[Comm. List.]) and Re Edgeworth Properties Inc., et. al.,
10 November 2011, CV-11-9409-00CL, CCAA Order of the Honourable
Justice Campbell (Ont. S.C.J. [Comm. List.])
5 Re Hush Homes Inc., 2015 ONSC 370
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The Canadian bankruptcy regime was designed with two key purposes in mind – provide options to ‘honest but unfortunate' debtors struggling with an unmanageable financial load and create an orderly means for creditors to recover amounts owed them.
The Court of Queen's Bench of Alberta authorized a disposition of a debtor's assets by a receiver immediately upon appointment and without being forced to conduct a marketing process within the receivership proceedings.
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